The behavior of universities is considered from an economic perspective. It is assumed that both the administration and the faculty pursue goals consistent with their own self-interests. In addition to reviewing studies from other disciplines, the market in which institutions compete is described, and a formal model of the university as a prestige-maximizing organization is developed. The analytic approach of industrial organization theory is applied, with special attention given to questions of entry, market size, and other determinants of market structure. The behavioral implications of the nonprofit status of colleges are considered in some detail. A microanalytic perspective is adopted, and the university's distinctive organizational features and rules for internal allocation are examined. In addition, a number of hypotheses are formally tested. Attention is directed to: patterns of prestige improvement displayed by different types of institutions, differences among disciplines in prestige improvement and in the number of new doctoral programs, and the emergence of new doctoral programs. Finally, the results of the theoretical and empirical analyses are summarized, and the distinctive contributions of the economic approach are evaluated. (SW)